Construction holding steady in Upstate New York, survey says

Daily Record (Rochester, NY), Sep 25, 2008 by Colleen M Farrell

Despite economic woes and a shaky housing market, the region's construction industry is holding steady.

That's according to The Bonadio Group's recent construction industry survey on Upstate New York. The Bonadio Group is a regional accounting, consulting and financial services firm.

The firm's analysis, its second annual, is based on input from contracting and construction companies throughout the region.

Most companies are making a profit, according to Scott Cresswell, who's in charge of Bonadio's construction and real estate division.

"Theres a lot of work out there. Roads are in a state of disrepair. Schools continue to need to be upgraded," Cresswell said. "People want a new office building. They want it to be state of the art and energy efficient ... . So all of those things are keeping the economy, when it comes to construction, strong."

According to the study, 94 percent of companies made a profit in 2006 and 2007; 98 percent predict a profit in 2008 and 65 percent of companies are projecting an increase in revenue for 2008.

Respondents ranked healthcare costs, worker compensation, general liability, higher fuel prices, rising material costs and the economy as high on their worry lists.

In August, construction input prices were pretty much the same as in July, according to the national Associated Builders and Contractors (ABC) group.

But, compared to last August, prices for construction materials are up 12.7 percent. Asphalt products continued to climb the most, jumping by 12.7 percent between July and August. That's a 42.6 percent increase since August 2007.

But, there's some positive news, Anirban Basu, ABC's chief economist, said. Commodity prices are going down, which should help the Federal Reserve maintain low interest rates through the rest of the year and into 2009, he said.

The belief now is that any decline in non-residential construction won't last long, according to ABC.

Companies "may have to expand a little bit more geographically, stay within their niche and watch their pennies, but they can make a good dollar if they do that," he said.

The Bonadio Group made recommendations on how companies can increase profits during the tough economic times.

Work on joint ventures to secure larger jobs and increase profits. The study shows only 34 percent of respondents currently participate in joint ventures.

Use long-term borrowing to fund equipment purchases so companies can improve overall cash flow. Just 20 percent of respondents are taking advantage of long-term borrowing.

Improve the rate of negotiated versus bid contracts, and increasing the time frame of contracts on backlog -- unrelated to funding issues -- to between seven and 13 months.

Get a form of Equal Employment Opportunity Commission insurance to protect against discrimination-related lawsuits. The study found that 60 percent of construction companies are without EEOC insurance.

The survey also found many companies lack internal controls to protect themselves from fraud and abuse. Only 13 percent have performed an enterprise-wide risk management analysis.

Companies also need to focus on the recruitment and retention of management.

"They have a large need for skilled and talented people," Cresswell said.

To request a copy of the study's summary, or to participate in next year's study, visit www.bonadio.com or contact Laura Del Monte at ldelmonte@bonadio.com, phone (800) 487-7624.